The Current Yield Tends to Overstate a Bond's Total Return

question 63

Multiple Choice

The current yield tends to overstate a bond's total return when the bond sells for a premium because:

• A)The bond's price will decline each year
• B)Coupon payments can change at any time
• C)Bonds selling for a premium have low default risk
• D)Taxes must be paid on the current yield

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Definitions:

Hypotheses

Statements or predictions that can be tested through scientific research or statistical analysis to determine their validity.

Fair Die

A perfectly balanced six-sided die where each face has an equal probability of landing up when rolled.

Goodness-Of-Fit

A statistical test used to determine how well sample data fits a distribution from a population with a normal distribution.

Unusual Results

Events or data points that significantly differ from the bulk of the data or from what is expected.